Microsoft has its own tablet, so offering a smartphone certainly isn't hard to believe.

How will Windows Phone partners feel about a Microsoft direct smartphone?

A rumor has surfaced that claims Microsoft is currently working with component suppliers in Asia to test out its own smartphone design. Earlier in the year, this rumor might have been met with significant criticism and disbelief. However, with Microsoft already offering its own tablet called the Surface and having plainly stated that it intends to do more first-party hardware, the latest report seems more plausible.

Windows Phone hasn’t traditionally been a very popular operating system for smartphones. It wouldn't be a stretch to imagine that Microsoft blames some of the poor showing of its smartphone operating system on poor hardware design. If Microsoft can design an attractive and high-performing smartphone using its own operating system, consumers might be more inclined to buy a Windows Phone 8 device.

The Wall Street Journal says that officials from some of Microsoft's parts suppliers have stated that the company is testing a smartphone design, but Microsoft isn't sure whether the product will go into mass production. The sources are declining to be named, naturally.

One source claims that the screen of the Microsoft smartphone being tested right now measures between four and five inches. A screen of that size would put it right in the mix with the iPhone 5 and the Samsung Galaxy S III.

"We're quite happy about this holiday [season] going to market hard with Nokia, Samsung and HTC," said Mr. Ballmer, referring to companies making smartphones powered by Microsoft software. "Whether we had a plan to do something different or we didn't have a plan I wouldn't comment in any dimension."

It's intended purpose is probably to tell the OEMs what to do and to shame them into not being so cheap and shoddy with their designs. It's probably not intended to be a successful mass market device and will probably only be sold online through limited channels.